View from Toronto: Bond Yields Likely Up. Harvey Spurs Oil

Risk-on to start the week (the August 18 bounce remains in play), with leadership from North American markets. Emerging markets are frothy and Eurozone equities have ostensibly topped for the year, says Ziad Jasani of the Independent Investor Institute in his weekly video.

Global Equity Markets: Entering the lowest liquidity week ahead, with buyers in control still playing out the August 18 mini-macro-market-bounce. “COHNfidence” was re-injected on tax reform August 25 and Yellen was a dove. The S&P 500 must hold above its 50-Day Average (2,450) into August 25 close to imply the bounce continues into next week (ideally the Nasdaq is able to hold above its 50-Day Average as well). This would keep us pointed north for the front end of next week. However, we are expecting disappointment on the US jobs data Sept. 1 (wages in particular).

GlobalBond Markets: Yields are likely to rise the front end of the week, but soften as we approach U.S. non-farm payrolls at the back end of the week (Sept. 1). Bonds, in general, are relatively expensive and yields are relatively cheap on annual routines; this positioning into a week of low liquidity and the continuation of the August 18 mini-global-equity-market bounce suggests taking short-term bond-trades off the table, and putting stops under longer-term positions.

Global Commodity Markets: Oil is looking to re-test ~$49 on fear (Hurricane Harvey) and then swing-high, while Gold is setting up for a swing-high under $1,294. Commodities globally remain in a longer-term downtrend channel but industrial input commodities including base metals are still pointed north the front end of next week, but getting overbought.

Global Currency Markets: USD remains more attractive than the euro or yen, with expectations for the USD to strengthen the front end of the week in tandem with US Equities. The CAD is more likely to soften throughout the week’s action. As equity markets decide on whether to believe Cohn on tax reform (so far, the answer is they do), we can expect the USD to bounce only soften again on poor wage data expected on Sept. 1.

Theme for the week: Risk-on to start the week (the August 18 bounce remains in play), with leadership from North American markets. However, emerging markets are frothy and Eurozone equities have ostensibly topped for the year = less likely that we make sustainable new highs globally.

Broad decisions: Hold for mid-to-longer-term equity positions but get your stop-losses in, especially on defensive interest rate sensitive sectors. Short-term the August 18 bounce is still intact. The front end of the week, look long into August 30 with short-term capital: